Auto Finance

Penske: Honda Rate Cap Provides ‘Workable Framework’

BLOOMFIELD HILLS, Mich. — Penske Automotive Chairman Roger Penske said during a quarterly earnings conference call Wednesday that he thinks Honda Financial Corp.’s new caps on dealer markup — the result of a settlement reached with the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) earlier this month — provide a “workable framework” for eliminating dealer discretion.

The executive noted that Penske has had caps on rate markups for a “number of years” — between 0.6% and 1%, and mostly 1% for its traditional preferred lenders. Penske also noted that the dealer group would be largely unaffected by the CFPB’s pressure on auto lending.

“When you look at Penske, specifically, 67% of our businesses in the U.S. and the other is internationally, so we’re not really impacted by it,” he said. “So at the end of the day, our finance revenue is only 40% … a big portion of our business is leased and there's flat and smaller margins available on those types of transactions.”

The dealer group saw a $15 improvement in its F&I profit per retail unit, which averaged $1,125 during the quarter. Excluding foreign exchange, the group’s per-copy average would have increased $52 over the previous year to $1,162.

Overall, Penske had its best quarter and six-month period in its history, driven by a 7.5% increase in retail automotive unit sales, a 50-basis point increase in automotive retail service and parts gross margin, and a reduction of 110 basis points in selling, general and administrative expenses as a percent of gross profit.

“The performance continues to demonstrate the flexibility and the resiliency of the company's brand mix and our business model,” Penske said.

Second quarter income from continuing operations increased 17.3% to $94.4 million, and related earnings per share increased 18.0% to $1.05 when compared to the same period last year. Penske also reported a total revenue increase of 12.2% to $4.9 billion. Gross profit improved 11.4% to $729.6 million, while operating income increased 17.2% to $159.1 million.

Penske also touched on the dealer group’s e-commerce efforts, including Penskecars.com. “Penskecars.com probably has, at any point, 25,000 to 30,000 vehicles on it,” the chairman noted, adding that used-car sales are a huge part of its Internet sales. The company retailed 49,500 used units in the quarter, an increase of nearly 9%.

“The used market today is three times of the new market,” he said. “And certainly with e-commerce, what’s happened — to give an example — just in Atlanta, we have two BMW stores there that do anywhere from a 100 to 125 new a month and they do 300 used. And you can imagine that everybody is not driving by the front door. So the impact of e-commerce there is amazing.”

Wantalease.com analysts report relatively flat lease pricing across most major brands, but increases on several popular models should give dealers enhanced latitude for holiday weekend lease discounts.